Main causes of inflation in an economy, Macroeconomics

Question 1:

Differentiate between income, price and cross elasticities of demand.

How will the concept of price elasticity be useful to the owner of a supermarket who wants to maximise sales revenue? Describe your reasoning, with the help of appropriate examples and diagrams.

Distinguish, with the help of diagrams and examples, between a firm's variable cost and fixed cost.

Describe why all firms aim at growing big in size.

Question 2:

(a) What are the main causes of inflation in an economy?

(b) Explain the policy implications that the central bank will implement if there is excess liquidity in the market.

d) Describe the trade-off between inflation and unemployment.

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